Calculate the dollar value of option at closing spot rates

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Reference no: EM131878561

You grow mesquite trees on your farm in Texas. Whenever a tornado strikes, you collect the fallen branches and sell the wood to Switzerland for use in bratwurst barbecues. You expect a payment of SFr62,500 in two months. In order to hedge, you buy a put option on francs that expires in two months with an exercise price of $0.7145/SFr. Draw the payoff profile of the currency put option. Calculate the dollar value of the option at closing spot rates of $0.7023/SFr, $0.7145/SFr, and $0.7234/SFr.

Reference no: EM131878561

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